Given the prices and trading volumes of a share over the past 12 months, are there any formulas or techniques for estimating either the potential or likely impact of tax-loss selling on the share price of the stock as the end of the financial year approaches?

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    I wrote an article on tax loss harvesting some time back. The article leverages the fact that long term gains are taxed at 15%, but losses can be deducted against ordinary income up to $3000. You might wish to add some more details to the question. As it stands, it's tough to answer. – JTP - Apologise to Monica Apr 11 '17 at 1:42
  • It will depend at the least on your overall income and where you reside. – BrenBarn Apr 11 '17 at 17:40
  • My focus is actually more on how much other people engaged in tax-loss harvesting might affect the share price in the lead-up to the end of the financial year. I realize any number would be an estimate / educated guess, but presumably there's some formulas that can be used to get a better quality of guess. – Adam Luchjenbroers Apr 13 '17 at 2:15

When you sell a stock that you own, you realize gains, or losses. Short-term gains, realized within a year of buying and selling an asset, are taxed at your maximum (or marginal) tax rate. Long term-gains, realized after a year, are taxed at a lower, preferential rate.

The first thing to consider is losses. Losses can be cancelled against gains, reducing your tax liability. Losses can also be carried over to the next tax year and be redeemed against those gains.

When you own a bunch of the same type of stock, bought at different times and prices, you can choose which shares to sell. This allows you to decide whether you realize short- or long-term gains (or losses). This is known as lot matching (or order matching).

You want to sell the shares that lost value before selling the ones that gained value. Booking losses reduces your taxes; booking gains increases them.

If faced with a choice between booking short term and long term losses, I'd go with the former. Since net short-term gains are taxed at a higher rate, I'd want to minimize the short-term tax liability before moving on to long-term tax liability. If my remaining shares had gains, I'd sell the ones purchased earliest since long-term gains are taxed at a lower rate, and delaying the booking of gains converts short-term gains into long-term ones.

If there's a formula for this, I'd say it's

(profit - loss) x (tax bracket) = tax paid

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